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PROPERTY: Luxury Cape Housing Retains Reputation For Better Than Average Return On Investment

 



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To score a solid investment return over the past six years, you would, in 2008 when the market dipped, have bought a luxury house priced at R10 million or more on the Atlantic Seaboard, the City Bowl, or the Southern Suburbs of Cape Town.

Current sales statistics indicate that, held for this period, properties in these areas have resold at prices that represent a nominal hike in value, compared with the initial investment, of between 16 percent and 20 percent a year.

“Of course there are factors that would have enhanced or limited the return on investment,” says Laurie Wener, MD of Pam Golding Properties (PGP) in the Western Cape Metro region. “Maintenance, insurance and municipal costs take a bite, but a rental income could have boosted the capital gain significantly.”

This comes off a discussion on the actual investment value of residential property compared with equities or fixed interest. Equities are subject to the highest risk and fixed interest the lowest. While equity investments can soar, they can also plummet at the hint of market wobbles. Interest-bearing investments fluctuate at the whim of the Reserve Bank.

Uncertainty in the financial markets has over the past few years sent many investors looking for a more reliable environment for their money, and many have chosen to trust the historic stability of residential property.

“And there’s nothing quite as solid as a prime residential area for boosting the value of a property investment. The Western Cape offers several areas that have become the yardstick by which others are measured. The Atlantic Seaboard - the coast between the V&A Waterfront and Llandudno - is the most prominent of the examples.  The City Bowl is another, and the luxury suburbs of the south are highly reliable,” says Wener.

From the beginning of 2008 to mid-2014, luxury homes in these suburbs have proved their value in vigorous trading.  Total sales of R15.930 billion were recorded over the time, of 887 properties, each realising R10 million and more. Of these sales, 76 percent were made in the City Bowl and the Atlantic Seaboard and the balance in the high-end suburbs of the southern peninsula.

The acceleration of unit sales compared with the figures for 2002 to 2007, when 334 luxury units were sold, means not only is the market recovering fast, but that individual values have also been commensurately higher.

“In fact, according to current PGP performance records, value is outstripping numbers right now,” says Wener. “Over the period March 1 to September 30 this year, our Western Cape Metropole Region showed a 6 percent increase in unit sales, against a 14 percent increase in value, compared to the same period in 2013.”

An interesting sidelight on the statistics emerging from the property market’s recovery period is that in the luxury market, houses are more in demand than high-end apartments. Over the past six years, 71 percent of the number of luxury sales recorded were houses, with apartments making up 29 percent.

However the average value of luxury apartments is similar to that of houses, and subject to the same nominal returns.

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